Rare Stock Market Indicator Flashes Bullish Signal

Only Three Other Occurrences Since 2002

The True Strength Index (TSI) is a momentum oscillator based on a double smoothing of price changes. As shown in the monthly S&P 500 (INDEXSP:.INX) graph below, a positive momentum crossover (black moves above red) has only occurred four times since 2002.

In the three previous cases, the S&P 500 rallied for a long period of time after the crossover; the average gain was 52%.

Monthly Indicator Flashes Bullish Crossover…

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Indicators Speak To Probabilities

Since no indicator can predict an uncertain future, the bullish crossover that recently occurred helps us with the probability of goods things happening relative to the probability of bad things happening over the coming months and years. Signals on monthly charts tell us little about the next few hours, days, and weeks. From Stockcharts.com.

As with MACD, a signal line can be applied to identify upturns and downturns…TSI is somewhat unique because it tracks the underlying price quite well. In other words, the oscillator can capture a sustained move in one direction or the other. The peaks and troughs in the oscillator often match the peaks and troughs in price.

Do Other Long-Term Indicators Align With TSI?

The True Strength Index tells us long-term momentum has improved in a bullish manner. This week’s video looks at other ways to monitor the strength of the current rally by comparing 2017 to major bullish and bearish turns since 1996.

Bullish Cross Came After Election

Markets move based on an almost infinite number of factors, including anticipated regulation and fiscal policy. The True Strength Index had a much more concerning look prior to the U.S. Election. In the figure below, monthly TSI for the S&P 500 as of October 31, 2016, is shown on the left. The same indicator is shown as of February 27, 2017 on the right.

President To Address Congress

Markets will be looking for new information on tariffs, taxes, regulation, and infrastructure when President Trump speaks to a joint session of Congress Tuesday. From NPR:

This week the White House has hinted at a different mood, using words such as “sunny” and evoking the memories of President Reagan’s often heart-tugging rhetoric in his speeches to Congress and the nation. We can expect to hear more about what’s going right in America.


Thanks for reading.


Read more from Chris over on CCM.

Twitter:  @CiovaccoCapital

The author or his clients may hold positions in mentioned securities at the time of publication.  Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.